Obama Administration’s Letter on Veto of iPhone, iPad Ban

U.S. Trade Representative Michael Froman issued the following letter to Irving A. Williamson, chairman of the United States International Trade Commission, on the decision to veto a ban on the sale of some Apple iPhones and iPads:

On June 4, 2013, the United States International Trade Commission (“Commission”) determined that Apple Inc. (“Apple”) had violated Section 337 of the Tariff Act of 1930, as amended, in the importation of certain devices, e.g., certain smartphones and tablet computers that infringe a U.S. patent owned by Samsung Electronics Co., Ltd. and Samsung Telecommunications America Inc. (“Samsung”). Following this determination, the Commission issued an exclusion order prohibiting the unlicensed importation of infringing devices, manufactured for or on behalf of Apple. The Commission also issued a cease and desist order that prevents Apple from engaging in certain activities, such as sale of these products in the United States.

Under section 337, the President is required to engage in a policy evaluation of the Commission’s determinations to issue exclusion and cease and desist orders. The President may disapprove an order on policy grounds, approve an order, or take no action and allow the order to come into force upon the expiration of the 60-day review period. This authority has been assigned to the United States Trade Representative. The legislative history of section 337 lists the following considerations relevant to the policy review of the impact of the Commission’s determination to issue an exclusion order: “(1) public health and welfare; (2) competitive conditions in the U.S. economy; (3) production of competitive articles in the United States; (4) U.S. consumers; and (5) U.S. foreign relations, economic and political.”

In addition, on January 8, 2013, the Department of Justice and United States Patent and Trademark Office issued an important Policy Statement entitled “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary FRAND Commitments” (“Policy Statement”). The Policy Statement makes clear that standards, and particularly voluntary consensus standards set by standards developing organizations (“SDO”), have incorporated important technical advances that are fundamental to the interoperability of man of the products on which consumers have come to rely, including the types of devices that are the subject of the Commission’s determination. The Policy Statement expresses substantial concerns, which I strongly share, about the potential harms that can result from owners of standards-essential patents (“SEPs”) who have made a voluntary commitment to offer license SEPs on terms that are fair, reasonable, and non-discriminatory (“FRAND”), gaining undue leverage and engaging in “patent hold-up”, i.e., asserting the patent to exclude an implementer of the standard from a market to obtain a higher price for use of the patent than would have been possible before the standard was set, when alternative technologies could have been chosen. At the same time, technology implementers also can cause potential harm by, for example, engaging in “reverse hold-up” (“hold-out”), e.g., by constructive refusal to negotiate a FRAND license with the SEP owner or refusal to pay what has been determined to be a FRAND royalty.